World’s Largest Charity Evaluator Revamps its Rating Formula

January 27, 2016

If you want to vet a nonprofit, you can go to Charity Navigator, where you’ll find ratings on more than 8,000 of the world’s largest charities. Organizations receive zero to four stars based on their financial health and transparency. But if you want to know whether they are actually making a difference, Charity Navigator can’t tell you that. And that’s a problem, according to its past and current CEOs.

Former Charity Navigator CEO Ken Berger. (Courtesy of Berger)

We spoke to Charity Navigator’s former CEO, Ken Berger, in our last podcast. He said he confronted a sober reality during his seven years at the helm: “The vast majority of nonprofits are not able to measure what matters most – their impact or outcomes.”

Charity Navigator’s new CEO Michael Thatcher wants to change that. The former Microsoft Chief Technology Officer was hired last year to replace Berger. He says he plans to continue strengthening Charity Navigator’s rating system. “We are very definitely moving forward with impact and outcomes reporting. That is something that is getting underway today.”

In the meantime, Thatcher says Charity Navigator’s current system provides valuable information about nonprofits, including whether they are credible, accountable, well-run and sustainable. But he concedes, “It’s not the whole story.”

Charity Navigator will likely face challenges as it seeks to gather data from America’s diverse nonprofit sector, which is comprised of everything from alumni associations to dance troupes, homeless shelters to global health programs. Success looks different for each. Furthermore, many nonprofits are small and lack the resources to effectively measure their impact. The Center for Effective Philanthropy also found in this 2015 study that the typical nonprofit “allocates just two percent or less of its budget to assessing its performance” and a minority received support from foundations for performance assessment.

Charity Navigator CEO Michael Thatcher. (Courtesy of Thatcher)

Thatcher says there is a way to get nonprofits onboard with his plans to rate them on impact. “If they see it as a benefit rather than a tax, then it’s an easier discussion. But I don’t think it’s good enough to say we can’t, it’s too hard to measure outcomes so we shouldn’t be held accountable to that.”

In addition, Thatcher says if charities can prove their impact, it will help them bring in more donations. “What better argument to solicit funding if I can show you the difference that I’m making in the world?”

Looking ahead, Thatcher recognizes the need to balance his organization’s ability to use technology with the power of in-person meetings. “The way I want to keep that balance is a mix of doing the analytical work in-house, but then getting out and interacting with groups of charities so we are able to understand what they’re doing. It is a collaborative process. It requires feeling the pain and being in the world of the other organization, so that you can actually encapsulate it in some way,” he says.

We’re curious to hear your experiences with Charity Navigator, whether you’re a donor or a nonprofit. What do you think of the organization’s plans to incorporate impact into its rating system? Does it accurately capture your organization’s progress in meeting its mission? What metrics do you think are most important in charity assessment?